Gold scorns Carter's orders

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Last week the United States government announced that it intends over the next six months to sell 1.8 million ounces of gold from its reserves.

Three days later, mostly in order to discourage gold smuggling, India unveiled a plan to sell an undisclosed quantity (estimated at 2.2 million ounces) over the same period.

Both moves had the predictable effect of sharply cutting the price of gold on the world market.

That short-term effect, Carter however, is of no importance compared with what these developments reveal about the present crisis of the world monetary system.

The objective of the US government is twofold.

First, the gold sales are an attempt to halt the fall in the international value of the dollar which has been going on since last year.

This decline has been to some extent, intended by the Carter administration since it was part of an effort to help US capitalists compete in world markets against competition from other capitalist countries, especially Japan.

But now this devaluation has gone further than Carter wants since it has begun (through raising the price of imported materials) to push up industrial costs and it has so far had if anything an adverse effect on the US trade balance.

Even though latest monthly trade balance showed an improvement overall, the deficit with Japan surpassed $1 billion for the first time.

The proposed sales of gold (which still have to be approved by Congress) are not enough by themselves to stabilise the dollar.

At today's prices they will be worth less than 2% of the annual US trade deficit.

Indirect

So any effect they have on the decline of the dollar will be largely indirect.

It will depend partly on whether or not the private speculators who hold hundreds of millions of dollars believe that the gold sales are a signal of Carter's determination to halt any further fall in the dollar.

The Carter administration also says that the gold sales have another purpose-to help to demonetise gold and convert it into "a commodity like any other"

To this end, the US Federal Reserve (the Central Bank) has hinted that it is prepared if necessary to sell the whole of the American gold stock.

This is a radical change from the period after World War I| when the United States had a near monopoly of the world's monetary gold reserves.

This enabled the US to impose on the rest of the capitalist world a monetary system in which all currencies were tied to gold through the intermediary of the American dollar whose value was fixed in terms of gold at the rate of 1 ounce=$35.

Gold stocks

As long as the US maintained its gold stocks the dollar could remain the dominant world currency and the special place of US imperialism could continue.

But in the long run the dominance of the United States depended upon its higher level of labour productivity.

As that came to be eroded in the 1950s and 1960s and as the US at the same time maintained and even increased its expenditure on counter-revolutionary activities around the world, so the trade deficit grew, the gold reserve bled away and the dollar was pushed from its pedestal.

The US could no longer maintain the fixed price of the dollar in terms of gold nor its level in relation to other currencies.

Thus in August 1971 the dollar was devalued by Nixon, its link with gold was severed and the price of gold began a dizzying ascent which took it to $200 an ounce by the end of 1974.

That price increase represented in part the restoration of the price of gold to somewhere near its true value after the years of inflation in which only the gold price remained fixed.

Reaction

But simultaneously the price rise reflected a reaction to the growing instability and signs of breakdown in the world monetary system.

London Price 1150 1968 69, OL, 20:000 Swiss francs per kilo '71 '72 "73 • $74 '75 "76 '77 8L,